Holiday Sales May Disappoint

U.S. retailers in recent days have become more pessimistic about the final sales tally for the 2000 holiday shopping season. The Commerce Department announced in mid-December that retail sales unexpectedly weakened in November just as the holiday shopping season was heating up. Most of the weakness was attributable to a sharp 2.2% drop in new-car sales, but even excluding the auto component the seasonally adjusted sales growth was slower in November than in October.

Other indicators also reflect a shopping season less buoyant than a year ago. According to the International Council of Shopping Centers, a New York-based group that tracks sales at mall specialty stores, for the holiday shopping season through mid-December, retail store sales were 8.2% below the 1999 season. Merrill Lynch senior retail analyst Dan Barry told The Wall Street Journal that he had lowered his holiday sales growth estimates for stores open at least year to 2.4% from 2.8% for a group of leading retailers including Wal-Mart, Kmart and Federated Dept. Stores. If this forecast proves accurate it will mark the slowest holiday sales growth since the recession of 1990 when shoppers spent just 2.6% more than the year before.

Catalog sales seem to be faring better than retail stores. The Direct Marketing Association's survey of catalog members finds sales up this holiday season anywhere from 5 - 15% over last year. However, even this is slower growth than last year's gain of about 20%.

As of this writing retailers are still hoping that a combination of factors has simply postponed shopping and that the final week of the shopping season will prove to be a blockbuster. A combination of bad weather, a nation mesmerized with the Presidential election dispute, and a December calendar which has Christmas falling on a Monday, supposedly has encouraged procrastination of gift-buying. Some evidence supports this hypothesis. According to the National Retail Federation, over the past few years U.S. consumers have been waiting longer to complete their holiday purchases. In 1999, about 20% of holiday retail sales occurred in the first 7 days of the season, while 32% occurred in the last 7 days leading up to Christmas. The convenience of the Internet has probably encouraged such procrastination. BizRate.com, a Los Angeles firm that tracks 2,400 online retailers, said that online sales this year peaked on December 18th when $254.1 million was spent on Internet sales. The firm had forecast the peak day to occur on December 13th.

Unfortunately for automakers and auto dealers, procrastination doesn't explain the sudden weakness in their markets. Sales of cars and light trucks sank in November to an annualized rate of 16.6 million units, the slowest pace since early 1999 and substantially below the 18.2 million unit pace set in the first quarter, 2000. Because of the very strong sales last winter and spring, the industry will still finish the year in record territory. For that matter, even a 16.6 million unit sales year is quite good by historical standards. Surveys indicate that consumers retain favorable attitudes toward buying vehicles, especially if manufacturers continue to offer pricing discounts (see previous article). However, the optimism of the last several years, fueled by the wealth effect of rising stock prices, may have accelerated consumer buying plans for vehicles. Many analysts believe that manufacturers exacerbated this acceleration in the buying cycle with their generous rebates and discounts. To the extent that consumers bought vehicles earlier than normal, then the prospects for sales rising much above the 16 - 16.5 million unit range over the next year or two are dim, even if interest rates decline after the first of the year.